Market Linked Debentures (MLD) Prospective

Market Linked Debentures (MLD) are an investment instrument, in which anyone can invest. But it is usually choice of investment by high-net-worth individuals (HNI) who park large amounts of corpus in fixed-income instruments. Before the current union budget, MLD attracted a 10% tax rate. The MLD tax rate has been raised from 10% to 30% in the current union budget, removing the privilege tax treatment. Earlier MLD would give a higher after the tax return. The current union budget has brought tax treatment at par with other fixed investment instruments. The taxes on sell-off is based on the entire portfolio composition. In the light of the recent increase in tax slab, investors' preference is likely to see a shift towards other instruments like Alternate Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Pre-IPO securities and offshore investments. Therefore, investors and issuers are now required to re-evaluate portfolio-level strategy.

The evolving financial markets have made HNIs look beyond traditional investment avenues for a diversified portfolio and higher returns. Cumulative investment in Alternate Investment Fund (AFI) at end of June’2023 is about Rs. 3.50 lakh crores (Source: SEBI statistics on Data relating to activities of Alternative Investment Funds (AIFs)). Portfolio Management Services (PMS) has reached Rs. 28.50 lakh crore as on June 2023 (Source: SEBI, Report of Portfolio Managers as on June 30, 2023). These figures suggest substantial investment. As per the Association of Mutual Funds in India (AMFI) website, the mutual fund industry has grown two-fold in 5 years. As per the Association of Mutual Funds in India (AMFI) report, Folio & Ticket Size June 2023, HNIs are contributing about 8.2% of the total account and they are actively investing in the debt-oriented, liquid/money market and hybrid schemes. 

According to prime database.com, MLD is worth over one trillion rupees in terms of outstanding debt. Even after union budget tax treatment, a major highlight of MLD lies within scheme structure, portfolio construction, and regular valuation with applicable regulatory norms. Stock and mutual fund holding are frequently subjected to market volatility and therefore potential capital erosion. Investors while constructing portfolios, plan for asset diversification. Structured products provide higher returns based on the movement of underlying assets. However, MLD provides a principal safeguard and potential for higher returns based on the movement of underlying assets. Considering capital protection, conservative risk appetite, asset diversification, and potential for higher returns, MLD still offers an excellent choice for investors and issuers. 

We at CRSPL provide excellent valuation services with 10+ years of experience in serving valuation reports, with top-notch data, and advanced simulation software. MLD perspective lies within diverse portfolio allocation using different asset classes to ensure lower volatility while weighing returns on cash flow. The popularity of MLD has decreased after the taxation policy but we have observed that there has been two more MLD issued after the new taxation policy indicating it to be a positive sign. Therefore, investors and issuers will be forthcoming with an MLD perspective based on risk appetite and risk factors.